Fool's Gold: Many risk-taking dreamers were lured to wireless by the promise of C block riches.

In 1995, Dan Riker may have sat back in his plush corner office, gazing out the window during a rare moment of solitude, pondering his future and thinking of how far he had come in little over a year. In 1993 he took a bold step and quit his job at MCI, risking everything he had to form a revolutionary PCS start-up. Riker wanted to offer wireless phones to the masses.

At the height of his empire, Riker courted the big names-Donaldson, Lufkin & Jenrette; Bear Stearns; Westinghouse-and employed upwards of 40 people, many of whom worked out of a high-rent office space overlooking Georgetown in Washington, D.C.

Today, Riker works from his home with one partner-his wife Janis Riker, a founding member of his company. He employs an army of lawyers. His seed money is gone and loaned money is running out. He now has even more time to ponder his future, which certainly looks a bit more dismal than it did that day in D.C. three years ago.

In 1995, George Benson may have also sat back in his office to dream of his future. About seven years earlier, while flying on a plane, Benson read an article about PCS technology and the FCC's plan to allocate spectrum for it. A telecom equipment distributor, Benson felt he was always at the mercy of his customers. The possibility of owning licenses and operating a network intrigued him.

Today, Benson still sits in an office in Little Chute, Wis., and uses his PCS network to conduct business from his PCS phone-which functions in the office like a regular desktop phone and outside like a mobile phone. Benson currently employs 120 people and has built out more than half of his company's PCS licenses. The height of his empire is yet to come and he's fulfilling every goal of his original business plan, almost to a T.

Benson, chairman and CEO of Airadigm Communications, and Riker, chairman and CEO of bankrupt Pocket Communications, both bought licenses to operate PCS systems in the same FCC entrepreneurs' block auction-the auction that many thought was going to be the last great gold rush of the century. Lured by government incentives, hundreds of people like Riker and Benson with risky spirits and big dreams quit their jobs, toiled over business plans, scrambled for financial backing and finally converged on Washington to bid on those golden PCS licenses.

Only a few survived. In fact, Benson, one of those survivors, could use that PCS phone to call the seven or eight of the 255 initial C block bidders that are actually in business today. But if he tried to get in touch with all those like Riker who are struggling to fit the pieces together, he might use up all the minutes in his bucket plan.

Why is Riker paying lawyers rather than contracting vendors to build a network? Why have many of those original entrepreneurs moved on without reaping a profit from their PCS ventures?

Some say the FCC enticed the small players with big dreams made of fool's gold. In retrospect, though, it's clear that a series of FCC decisions and a handful of over-eager bidders doomed this gold rush from the start.

The story of the C block auction begins with the Omnibus Budget Reconciliation Act of 1993, which added section 309J to the Communications Act of 1934. Section 309J requires the FCC to offer small businesses, women, minorities and rural telecommunications companies a chance to compete in the deregulating telecom industry. The FCC decided-after much debate-to use the auction process to distribute licenses and offer a separate spectrum auction just for those designated entities.

Then a series of missteps-a series so long and intricate it's almost comical-left most auction participants out in the cold.

First, the FCC decided that the separate C block auction would follow the first two rounds of auctions-the A and B blocks, which were reserved for existing wireless players looking to expand their spectrum coffers.

"In hindsight, I think people at the commission would admit that the C block should have come first," says Jerome Fowlkes, director of domestic consulting for BIA Consulting and former deputy chief of finance for the auction and industry analysis division of the FCC.

Part of the reason for scheduling the C block after the A and B blocks was so that the companies bidding in the first auctions could establish a strong market, thus paving the road for C block financing. The FCC also may have assumed that the A and B block players wouldn't necessarily win all the licenses they wanted and therefore would be forced to rely on C block winners. But that didn't happen.

"It turned out the A and B block bidders got what they wanted," says Jack Robinson, president of C block hopeful National Telecom.

Many believe the FCC promoted the C block auction as a road to easy money, diminishing the potential risks.

"The idea the FCC portrayed was that they were opening a California gold mine to a select group of businesses," says David Roddy, chief telecommunications economist for Deloitte & Touche. While mildly critical of the overzealous promotion, he supports most of the FCC's decisions.

C block bidders may have had a chance, had the auction actually taken place 75 days following the close of the A and B blocks as was originally planned. Instead, a series of four stays resulting from litigation filed by disgruntled competitors prevented the auction from beginning until Dec. 18, 1995, nine months after the close of the A and B blocks.

"It gave the A and B block winners time to wind up and build out their infrastructure," says Ira Brodsky, president of Datacomm Research.

Those four stays were issued as a result of lawsuits filed regarding the FCC's regulations for C block players. The first stay stemmed from a lawsuit filed by Telephone Electronics Corp., alleging that the C block race and gender-based rules violated its constitutional right to equal protection. Within a month, TEC withdrew the suit when it reached an agreement with another party that allowed it to participate in the auction.

A month later, the Supreme Court issued the Adarand decision, which ruled that all racial classifications imposed by any governmental body must be analyzed by a reviewing court under strict scrutiny. As a result of the ruling, the FCC suspended the auction date again to alter the C block preferences for women and minorities to include all small businesses.

Omnipoint then sued the commission, claiming the FCC did not give companies enough opportunity for comment on its changed rules. The FCC won the lawsuit, but only after another stay was issued.

Many observers have accused Omnipoint of filing the lawsuit as a foot-dragging technique as it prepared to launch its New York market. The company had already been awarded a Pioneer's Preference license, one of a series of licenses handed over by the FCC to companies that were developing experimental technologies. Omnipoint was able to launch service in New York using GSM technology even though it received the license for its IS-661 technology, which it still plans to deploy.

Cincinnati Bell caused the final stay, challenging the FCC rule that precluded PCS and cellular providers from holding licenses in the same market. The court agreed with Cincinnati Bell that the rule would hurt C block players, and the rules were changed.

The final date for the auction was set, but the delays caused by these stays hurt nearly all the C block players.

"Every day that went by was incredibly bad for the little guys who needed every break they could get," says Steve Zecola, former president and CEO of Go Communications, another bidder earmarked to be a big winner.

Many believe that these and later delays are really to blame for the fact that today, few license winners have launched service. "It was a total disaster-a prime example of the worst government policy-making in history," Robinson says.

When the C block auction actually did begin, confidences were still high. "It was still going to work at that time," Robinson says. "The stock market was still hot in terms of wireless."

Then, almost from the start, the bidding went through the roof.

"The big story is that the four biggest bidders were irrational and irresponsible," Zecola says. He blames NextWave Telecommunications, Pocket, General Wireless Inc. and BDPCS for bidding prices so high that only 89 of the original 255 bidders emerged with licenses.

As those players bid higher and higher, others dropped out or significantly scaled back their target markets. Zecola, for example, bid initially on 80 million to 90 million potential customers, or pops, progressively dropping that number until he was only bidding on one market with 5 million pops. Then he dropped out of the auction.

"It got to the point where every market was so high, we weren't comfortable," Zecola says. "It just didn't feel good."

Omnipoint says it won less than a quarter of what it originally thought it could afford. "We kept hauling back," says George Schmitt, president of Omnipoint.

At the time, the FCC was understandably happy with the progress of the auction. "We're quite pleased with both the pace of the bidding and the dollars that are being generated," said Michele Farquhar, then chief of the FCC's wireless bureau, in an interview with Telephony during the auction (Telephony, Jan. 29, 1996, page 9).

But as the auction came to a close, many weren't so pleased. Some say the top bidders had reason to drive up the prices-namely that the terms set by the FCC were incredibly favorable. License winners had to pay out only 5% of their bid price within 10 days after the auction and an additional 5% when the licenses were actually awarded. They would pay interest for the next six years, with the principle amortized over the following four.

Others allege the top four bidders had substantial backing from foreign investors, most notably from Asia, which encouraged the high bids and vowed to back them. Some of these auction participants, especially NextWave, came under heavy fire after the auction for allegedly surpassing the 25% foreign investment cap set by the FCC.

In retrospect, many say the FCC should have structured a mechanism to control theprice of bids, in essence building a ceiling. "They should have had some way of controlling the number of pops they would allow one bidder to get," Benson says.

Zecola argues that the FCC did just that. Separating the big players from the small businesses should have controlled the bidding, he says.

"To exclude the people with the big money would have the impact of keeping prices lower," he reasons. In addition, the value of the licenses logically should have gone down during the nine-month delay. Instead, C block players paid an average of $40 per pop, compared with the average $15 per pop in the A and B block auctions.

The end of the auction wasn't the end of the story. A few days after the auction's close in May 1996, the first license winner defaulted on its payments-BDPCS couldn't afford the initial 5% bid deposit.

Then some of the bidders filed lawsuits, challenging the financing of big bidders Pocket, GWI and NextWave. All three were accused of exceeding the 25% foreign ownership rules. These suits meant those bidders were not immediately awarded their licenses.

NextWave refused to grant Telephony an executive interview for this article, but a company spokesperson agreed to answer some questions on the condition of anonymity. Although many say NextWave clearly violated the foreign ownership rules, the spokesperson contends that it never did.

The foreign ownership issue was complicated by the simultaneous involvement of the U.S. government with the World Trade Organization, which ultimately resulted in relaxed U.S. foreign ownership restrictions. The bidders knew that the U.S. was involved with changing these regulations, so some may have stretched the C block rules, says Roddy of Deloitte & Touche.

As result of the suit against NextWave, the FCC issued a list of conditions for the company to reorganize and comply with the regulations. NextWave contends that the FCC condition was not a requirement to change its foreign ownership makeup but rather a suggestion for how NextWave might prove its compliance, the spokesperson says.

After the FCC issued the condition, though, it also changed the C block foreign ownership rules. But the FCC didn't follow up with NextWave to ensure it met the conditions. Other C block bidders are angry not only because they believe NextWave was allowed to participate in the auction using illegal funding, but also because they say the FCC never followed up on its mandate to the company.

NextWave has filed a petition that says it is compliant with the new rules and asks the FCC to remove the condition, the spokesperson says.

GWI was also involved in a foreign ownership lawsuit, this one stemming from Hyundai's involvement with the company. The court ruled in GWI's favor, says Dennis Spickler, vice president and chief financial officer for GWI.

Two lawsuits prevented Pocket from receiving its licenses quickly. Radiofone claimed that it was forced to drop out of the bidding on certain markets to comply with the FCC's PCS/cellular cross-ownership rules. It petitioned the commission to refrain from awarding licenses in certain markets, including some where Pocket had prevailed.

The other, filed by National Telecom, claims that Pocket had inside information on Nat Tel's bidding strategy for certain markets. Nat Tel claims that Pocket acquired information about its bidding strategy from a financing firm that was working with both companies. That suit is still pending.

The companies whose licenses were delayed complain that the delays prevented them from securing public funding to help pay for their licenses and buildouts. Market conditions shifted during the time it took the FCC to award licenses to those companies, and the FCC was already on to its next rounds of spectrum auctions.

"Part of the reason we believe the markets declined is because the FCC continued to auction spectrum," says Spickler. The D, E and F block auctions produced licenses at much lower prices than the C block auction. "The public financial markets said, 'There's more available and they are paying less than theC block, so why should we fund the C block?'"

GWI, Pocket and NextWave finally received their licenses at the end of 1996 and early 1997.

"By then the IPO window had closed," Nat Tel's Robinson says.

Some blame Omnipoint's New York launch for much of the difficulty in getting financing.

"They were the bellwether," Riker of Pocket says. The financial community awaited Omnipoint's launch as a symbol for how C block players might fare, even though Omnipoint's New York market was awarded as a Pioneer's Preference license. The launch turned out to be disappointing, offering what some say was low-quality service. As a result, Omnipoint's stock fell. After that, Riker says, "No one could do an IPO."

>From the start, though, both C block players and financiers knew that the >FCC would continue to auction spectrum.

"It's Economics 101," Roddy says. "If those licenses were available nine to 12 months earlier, they still wouldn't have gotten financing."

Some of the successful companies-including Omnipoint-agree that the problem is not with the time that passed but with the amount of money companies such as Pocket bid and the number of markets they went after.

"They just spent too much," Omnipoint's Schmitt says. While the big players such as AT&T Wireless Services and PrimeCo Personal Communications spent $18 per pop on average, some of the C block players paid closer to $50 per pop. That $30 gap won't allow them to be competitive, he says. "You won't get financed and your business plan won't work." Omnipoint bid an average of $28 per pop.

On March 31, 1997, Pocket filed for bankruptcy to protect some of its creditors before defaulting on an interest payment. On the same day, the FCC decided to suspend license payments while it worked on a restructuring plan in an attempt to aid the struggling license winners.

Although the suspension likely eased some pressures, it also produced negative results.

"That cut off any possibility of receiving any funds," GWI's Spickler says. Interested investors were unlikely to commit without knowing what the FCC's restructuring might look like.

The FCC ultimately gave bidders four choices: They could resume payments over the original 10-year repayment period, surrender their licenses and forfeit all of the payments they had made, return a portion of their licenses to the FCC for reauction, or pay in full for the licenses they could afford immediately and return the rest.

Rather than choose one of the options, GWI declared bankruptcy and filed suit against the FCC. NextWave soon followed.

Benson, whose Airadigm Communications had by this point already launched service, sympathizes with other players' positions in choosing an option. "You're damned if you do and damned if you don't," he says.

Spickler suggests that the FCC was motivated by its own financial interests when constructing the options.

"To me what has happened here is the government came up with an idea to recover a part of the value of a national resource," he says. "Radio spectrum has value, but the FCC should be focused on getting it into service. The FCC didn't stay focused on that-they were more focused on raising money."

Zecola agrees that the FCC was overly concerned with money. "When it came to the C block, the FCC was euphoric about the $10 billion, not realizing it was funny money," he says.

Rather than present the options it did, the FCC should have deferred interest payments or crafted a creative payback plan that would allow companies to move forward, Brodsky says. "By making the options punitive, it upholds the perception that it was because of misbehavior of the bidders that things went the way they did," he says.

The fact that around 300 licenses were returned proves to some, however, that the options were helpful.

The FCC options opened up a slew of new problems. Now the FCC had to deal with the effects of both bankruptcies and lawsuits.

On Oct. 20, 1997, GWI filed a lawsuit against the FCC, saying that the value of its licenses decreased between the time the company bid on them and the time they were awarded. The court ruled in GWI's favor, saying that the value of the licenses when transferred to GWI wasn't the $1.06 billion that it bid, but only $166 million. Considering GWI's down payment, the court ruled that GWI owes only $60 million. The FCC has appealed the decision.

On Sept. 9, the bankruptcy court approved GWI's restructuring plan. On Sept. 30, a 10-day stay will end, and the judge will decide either to allow GWI to begin operating even before the FCC's appeal is decided or require GWI to wait for that decision.

The FCC is also asking Congress to alter bankruptcy laws to prevent the licenses from being tied up in litigation.

"It's very much up in the air how quickly we can recover those licenses and put them into the hands of people who have the wherewithal," says Dan Phythyon, chief of the FCC Wireless Telecommunications Bureau.

The FCC may not realize that it will probably have to fight hard to take those licenses from the bankrupt companies. NextWave and GWI have no intention of giving up all their licenses so other companies can build them out.

"We're still hopeful," Spickler says. "That is why we continue to work our way through this legal process. If the FCC were to step aside, we would be in business in 12 months."

The FCC recently set March 23, 1999, to reauction returned licenses-two years and 10 months after the close of the C block and four years after the end of the A and B blocks.

"That's a long time to be behind the deep-pocket A and B players who are out there marketing," says BIA Consulting's Fowlkes. He believes a limited audience with creative niche plays will bid on the licenses and bid low. "The only way to compete without a niche is on price, and the last thing you want to do is compete on price."

Onlookers and players have analyzed every move of the auction and have commented in retrospect for what went wrong and what should have been done differently. One much-discussed issue revolves around whether the FCC should ever have been in the position of creditor. Fowlkes and many others wonder if the auction should have been run by the treasury department or another arm of government.

Spickler criticizes the FCC for how it lent money. "They didn't review anyone's business plan like any lender would do," he says. "They had no idea of the kinds of things we were trying to do here."

The FCC also unfairly created a get-rich-quick image for the auction, Roddy says.

"They should have said, 'You have the opportunity to be the tenth shoe store in a city,'" he says. "That's not as sexy as a gold mine."

Rather than be misled by the FCC's portrayal of the auction, perhaps the entrepreneurs should have seen the auctions for what they truly were: a gamble.

"Our mandate from Congress was to afford opportunities, but not guarantees," Phythyon says.

The problems license winners had with funding also raises the significant question of whether wireless is an appropriate field for small businesses.

"PCS is such a capital-intensive industry-was it the best idea to have small business incentives in here to begin with?" Fowlkes asks.

Ironically, Robinson believes small businesses have a great chance of surviving in wireless. He compares wireless to the deregulation of the airline industry. While small businesses might have difficulty competing on a national scale in either industry, a niche strategy can win.

The FCC still maintains its optimism. "No one should conclude from the C block that wireless is only for big players," Phythyon says.

In the end, the C block auctions were a tremendous disappointment to many people who traded their livelihoods and money for a shot at running a PCS company. The losers in the auctions-the ones that lost time, money and their careers-have every right to feel bitter. But there is even some bitterness among the winners.

"If it had been managed properly it would have been a great idea," says Airadigm's Benson. "It could have been a beautiful thing."

The road leading to and from the C block auction was a long and rocky one. It all started with the FCC decision to designate a separate auction for minorities, women, rural telecommunications companies and small businesses. When the C block auction finally happened, probably the only aspect of the auction that remained the same as the original plan was that it was held separately.

The following timeline depicts the turn of events following the decisions to create the C block auction through the present, when three auction participants are struggling through bankruptcies and only a little more than a handful have launched service.

1994 June 30 FCC adopts competitive bidding procedures for broadband PCS licenses

Dec. 5 A and B block auction opens

Dec. 13 The FCC awards a Pioneers Preference license to Omnipoint on the condition that Omnipoint substantially use the technology for which the license was awarded

1995 March 13 A and B block auctions close; 99 licenses sold netting more than $7.7 billion

March 15 U.S. Court of Appeals for the District of Columbia issues a stay of the C block auction in response to a filing made by Telephone Electronics Corp.

May 1 Court lifts stay; FCC announces Aug. 2 auction date

June 12 Supreme Court rules on the Adarand Constructors vs. Pena case, saying that the federal government's use of race-based criteria for decision-making must satisfy the requirements of "strict scrutiny"

June 13 Filing deadline for C block auctions is suspended so FCC and potential applicants can analyze Adarand decision. FCC issues a new auction date of Aug. 29

June 23 FCC issues further notice of proposed rulemaking, seeks further comment on minority preferences in C block rules. Grants all A and B block licenses

July 21 FCC issues the Competitive Bidding Sixth Report and Order, which modifies the designated entity provision of the C block rules to make them race- and gender-neutral

Aug. 9 District of Columbia circuit court issues another stay of motion, this time in response to a filing by Omnipoint

Sept. 28 District of Columbia circuit court dissolves Omnipoint stay. FCC sets new C block auction date of Dec. 11

Oct. 18 FCC receives another stay, this time for a lawsuit filed by Cincinnati Bell

Nov. 9 Sixth circuit court of appeals rules in Cincinnati Bell's favor that the FCC cellular/PCS cross ownership rules are arbitrary

Nov. 13 The FCC says the auction will begin on Dec. 11, despite the court's ruling in the Cincinnati Bell case. The FCC says it will reconsider the cross-ownership rule

Nov. 14 U.S. government shutdown. The government grants the FCC an exception and it continues PCS block proceedings

Dec. 8 Radiofone files for a stay of the auction regarding cross-ownership rules and a 45 MHz spectrum cap. The FCC denies request

Dec. 18 C block PCS auction opens

1996 Feb. 8 Telecommunications Act of 1996 is signed into law.

April Go Communications drops out of the auction

May 6 PCS C block auctions conclude; 493 licenses net $9.2 billion. Ten days after the auction closes, licensees are required to pay 5% of their bids. BDPCS immediately defaults on payments

July 3 FCC begins re-auction of 18 defaulted C block licenses. NextWave places 17 out of 18 high bids in the first round

July 16 C block re-auction closes, 18 licenses net $904.6 million in total revenue

Aug. 26 D, E and F block auctions open

Nov. 14 Omnipoint commercially launches service in New York City.

1997 Jan. 14 PCS D, E and F block auctions close; 1479 licenses sold for $2.5 billion. PCS entrepreneur licensees begin to request modification of installment payment debt

Jan. 27 After delays, GWI is awarded its licenses. Nextwave and Pocket also are awarded their licenses around this time

Feb. 15 The U.S. and 68 countries agree to open their telecommunications and satellite markets beginning Jan. 1, 1998

March 31 Deadline for all C block installment payments suspended until further notice

March 31 Pocket files for bankruptcy

Sept. 25 FCC outlines four new payment options; C block licensees must choose one by Jan. 15, 1998. First payment due March 31, 1998

Oct. 20 GWI, the third largest license winner, files for bankruptcy

Nov. 25 The FCC replaces the effective competitive opportunities test, which required foreign applicants to prove their home markets offered competitive opportunities for U.S. companies with an open entry standard

Jan. 14 NextWave issues a press release announcing the installation of its PCS network in Las Vegas

March 24 FCC permits C block licensees to choose a payment plan on an MTA basis rather than all their licenses. Licensees have 60 days to select payment options

March 20 Pocket lenders Pacific Eagle Investments, Masa Telecom, Ericsson and Siemens submit a plan to the U.S. Bankruptcy Court to form a new company to operate networks in Dallas and Chicago. Pocket would return the rest of its licenses and have its debt canceled

April 17 FCC announces June 8 deadline for licensees to choose a payment option. Payments to resume on July 31

April 24 Bankruptcy court issues a ruling that when GWI's licenses were awarded they were not worth the $1.06 billion that was initially bid, but only $166 million. FCC files an appeal

June 5 District of Columbia Court of Appeals overrules lower court's decision to stay FCC's June 8 deadline for selecting C block payment options

June 8 Deadline for choosing payment options

June 8 NextWave seeks bankruptcy protection

July 31 C block payments resume

Aug. 27 The FCC sets March 23 as the re-auction date for returned C block licenses

Sept. 9 Bankruptcy court approves GWI restructuring plan

While many people try to shift the blame for the outcome of the C block to the FCC or the bidders, Steve Zecola, former president and CEO of Go Communications, blames only the high bidders.

Zecola once headed MCI's wireless effort. When that fell through, he quit MCI to start Go Communications and began lobbying for an entrepreneurial auction block.

By the start of the auction, Go had raised $125 million in equity from companies such as Fidelity and Mitsubishi and had debt commitments for $735 million. "We were the best-financed company at auction," Zecola says.

Go also had a unique service plan. Zecola envisioned customers replacing their landline phones with PCS phones. They would be charged a flat rate competitive with landline in a home calling zone. "My belief was that the fifth player in a market had to differentiate themselves," he says.

His plans for a differentiated service never came to fruition. At the start of the auction, Go bid on 80 million to 90 million potential customers, far more than the 25 million to 50 million pops Zecola hoped to get.

Some investors in the company had provisions in their contracts saying that if Go didn't get at least 25 million pops, it would have to return the investments. Yet when Go's goal dropped to 25 million pops, its investors waived the minimum, instructing Zecola to keep bidding.

"They said, 'Even if you can't raise money after the auction, we will finance you,'" Zecola says.

Go scaled back again, bidding on just one market-Miami, with 5 million pops costing $65 a pop. Zecola says his investors were still supportive, encouraging him to win at least one market. Despite that support, Zecola made the difficult decision to withdraw from the auctions. That decision was made all the more difficult by the fact that Go at that point employed 20 people who had done substantial work gearing up to launch. "We were ready to have service rolled out," he says.

>From the outside, Zecola's decision seems smart, and many observers have commented that some of the bankrupt companies should have done the same. While Zecola still believes the decision was a good one, his words search for reassurance. "Go dropped out because we didn't think it was a viable business offer," he says. "I think Wall Street respects that."

When Dan Riker, chairman and CEO of Pocket Communications, founded the company, he hoped to completely change the perception of wireless.

A flat-rate pricing scheme and off-the-shelf product would put this new service in the hands of all consumers, with the idea of encouraging them to unp lug their landline phones. In fact, Pocket had a deal with Mitsubishi for handsets that performed like a cordless phone, offering a dial tone and connecting calls automatically without requiring users to press send, Riker says.

Pocket was so dedicated to its new wireless vision that its business plan included the possibility of losing money for an extended period of time, says a source close to Pocket who requested anonymity.

During the delays leading to the C block auction, Pocket staffed up and began preparing for launch. The company began acquiring properties in Hawaii and Las Vegas for facilities, and it even installed switches, Riker says. In Las Vegas, Riker pursued opportunities with casino owners who were interested not only in supplying their employees with PCS phones, but also offering them to hotel guests, the source says.

When the auction finally came, Pocket, like many others, felt pressure to keep its investors happy. "We lost Westinghouse because they wanted to have a bigger footprint," Riker says.

Pocket also was working to take the company public. Donaldson, Lufkin & Jenrette, which was to take the lead on the initial public offering, had prepared an elaborate presentation for potential investors. Then a week before the road show was to begin, DLJ called into a Pocket board meeting and said it couldn't do the deal, the source says.

Riker blames post-auction delays for Pocket's inability to secure financing. But other factors besides time may have been involved.

"They put all their eggs in the bankers' basket," says the source. "They needed a strategic partnership for cash outflow and also someone to give them a name to hang their hat on."

Pocket may also be to blame for ignoring warnings that the IPO led by DLJ might not happen and also by not seeking counsel of management experienced in taking a company public, says the source.

After DLJ pulled out, Pocket was limited in how it could pursue financing because IPO regulations said Pocket could seek only private funding for six months after filing. The company could not get enough financing and had to file for bankruptcy.

"It had nothing to do with the FCC," Riker says. "It was a defensive move due to circumstances with some of our debt." One of Pocket's creditors would not extend the payment deadline on a loan, and defaulting with that creditor would cause Pocket to default on its others.

In December 1997, a group of Pocket investors including Ericsson, Siemens, Masa Telecom and Pacific Eagle Investments began negotiating with the FCC. They proposed buying Pocket's Chicago and Dallas markets and returning the rest to the FCC for reauction.

If those investors gain possession, they will have to choose one of the entrepreneurial band players to operate networks, says George Schmitt, president of Omnipoint Communications. Omnipoint has submitted proposals to the FCC and to the debtors in hopes of being chosen to operate some of Pocket's markets.

Riker expects the issue to be resolved this fall, which he doesn't believe is too late to get started. "The opportunity is still outstanding," he says.

Pocket hasn't filed bankruptcy without leaving a trail of bitterness. Many private investors lost money, and other C block players convinced by Riker to choose GSM technology now are without roaming capabilities in big markets such as Chicago and Dallas.

Riker, who says he hopes to remain with Pocket, also shows some bitterness. "I would have done something else if I had any idea this would happen," he says.

My dream was always to be a license holder," says George Benson, chairman and CEO of Airadigm Communications, one of the few C block winners with an operational network and real customers.

After reading about PCS technology 10 years ago, Benson began investigating how to obtain spectrum. The FCC decision to hold auctions presented the opportunity Benson waited for to become a wireless operator.

He found a financial partner in the Oneida tribe of American Indians, which was interested in diversifying its investments. The tribe teamed with Benson, taking a 49% equity stake in the business. Benson and a partner formed Wisconsin Wireless to be the parent company and majority owner of Airadigm.

Rather than aim to be the largest carrier with a nationwide footprint, Airadigm "took the ploy of picking out a territory we knew and understood," Benson says.

During the delays of the auction, Wisconsin Wireless conducted business as a dealer for in-building wireless systems. Not only did that business offer Airadigm a revenue stream, it allowed it to build relationships with exactly the community it would target with its PCS service: Airadigm planned to offer PCS service as an in-building option to the business community.

Unlike many other C block players, Airadigm never had any intention of going public, though Benson doesn't rule out the possibility.

Airadigm chose Ericsson to supply its GSM network. Because it has taken Ericsson longer than expected to produce an in-building technology, Airadigm began offering services to the consumer marketplace to offset some of its costs. It has also secured four or five companies with in-building systems using existing technology.

Ericsson delivered its new technology in August, which will help Airadigm pursue large business customers. Such a business strategy decreases the likelihood for those users to churn and quickly adds a large volume of users, Benson says.

Since completing the first call in December 1996, Airadigm has built out more than half of its territory. Benson feels fortunate to have emerged unscathed from the auction, pointing out how complicated the business is.

"It's not a job for the faint of heart," he says.

When Jack Robinson founded National Telecom in the spring of 1994 to bid in the C block auction, he had good reason to think his company might end up being one of the leading PCS players in the country.

Early on, Nat Tel signed a deal with Sprint PCS under which Sprint would invest $300 million for 49% ownership of the company. Sprint PCS, then still called WirelessCo, intended to use Nat Tel to fill in any coverage holes it might have after the A and B block auctions.

"This was the type of deal the FCC wanted to foster," Robinson says. So confident was he with the money he had secured from Sprint and others that he thought he might be the largest license winner. "We were going to be the NextWave of the auction at that time," he says.

Nonetheless, Robinson read some early warning signs of trouble. When the FCC scheduled the entrepreneur's block to follow two auctions, he complained that this would allow the big companies to win all the spectrum they wanted, leaving nothing for the entrepreneurs.

Following the first stay of the auction, Robinson says he filed a letter to the FCC, warning against delays and predicting losses. Little did he know that this delay would be the first of four that eventually set the auction back nine months.

Meanwhile, the A and B block auctions came to a close. The contract Nat Tel had with Sprint expired on its own terms because Sprint got all the spectrum it wanted-the exact result Robinson predicted.

During the ensuing delays, Nat Tel worked to raise money to fill in the gap left by Sprint's exit. "We were just treading water," Robinson says.

When the auction finally came, "we had a huge bidding up of prices," he notes, because of attractive FCC financing.

Nat Tel was able to secure a deal with Paine Webber, which agreed to make a best effort offering to raise $100 million for the company after the auction. "When it came down to the wire in December, Paine Webber couldn't raise any money," he says. "The financial players didn't want to invest unless you had a strategic partner." But by then strategic partners were hard to come by.

Nat Tel is currently involved in litigation against both Pocket and the FCC. Even if Nat Tel wins Pocket's licenses, as Robinson hopes to do as part of the lawsuit, he's not surewhat he'll do with them. Building out now would mean being a fifth entrant in some markets-a daunting prospect.

He blames the FCC for leading people like him into the auction and then handling the proceedings badly.

"People like me quit their jobs," he says. "We put our lives and money into it."

Any long and drawn-out event that involves money, passion and careers produces rumors. The C block auction is no exception.

One logical place for imaginations to stray is to the motivation behind FCC actions, which are often blamed for the outcome of the auction.

Omnipoint President George Schmitt suggests-although he stresses this is strictly an unfounded rumor-that Michele Farquhar, then chief of the FCC's wireless bureau, received orders from as high up as Vice President Al Gore to hand over licenses to companies in alleged violation of foreign ownership rules. Gore's alleged motivation: strong ties between his Korean campaign financiers and Korean investors in those C block companies. Farquhar denies any such order. "I was concerned that we abide by the rules," she says. "We did a thorough investigation."

Dennis Spickler, vice president and chief financial officer for GWI, suggests that some FCC commissioners were influenced by their ties to some large A and B block players that might have benefited from the delay and ultimate failure of the C block.

Ira Brodsky, president of Datacomm Research, believes that much of what happened-from the FCC's treatment of the Pocket bankruptcy to the attack on NextWave regarding foreign investment-stemmed from the FCC's preferential treatment of GSM over code division multiple access.

Finally, after all of NextWave's strong support for CDMA, Schmitt says the company may no longer be married to CDMA. He says Allen Salmasi, president and CEO of NextWave, said he was willing to use any technology if he could just get financed. A NextWave spokesperson refused to speculate about what type of technology NextWave might use to build out a network.